Tax-to-GDP ratio in Pakistan is singled out as the principal devil in the fiscal regime of Pakistan and termed as unsustainable. IMF, time and again, highlights it as such and so do the finance managers of the country.

Whereas, to analyse why it is so and to bring forth facts as to how truly the governments deploy the tax collected in public welfare and to spur economic growth in the country is often missed out. The facts and answers lie in grouping together the regime of tax collection and its rightful deployment and then analysing the two together.

Finance Minister Muhammad Aurangzeb while speaking this week at a high-level discussion on the topic of growing burden of global debt on developing economies at the World Economic Forum in Davos, said: “It is difficult to get rid of the debt burden without fixing your own house first.”

The finance minister stated that Pakistan’s biggest issue has been the twin deficits in the current and fiscal accounts. He said the primary reason for the fiscal deficit is the unsustainable tax-to-GDP ratio, which stands at 9 to 10 percent. Efforts are currently underway to increase this ratio to 13 percent, the finance minister added.

That the minister is spot on is a fact. However, tax-to-GDP ratio is one of the factors in the fiscal discipline of the........

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